Blazing the cryptoliberalisation trail – digest of the Belarusian economy

On 22 December 2017, the President of Belarus Alexander Lukashenka has signed a presidential decree that identified Belarus as the first country in the world to legalise the blockchain—a digital ledger in which transactions made in cryptocurrencies can be chronologically recorded.

In the meantime, improved oil prices have helped the government outpace their economic growth plans for 2017. This has led to forecasts for 2018 to be even more ambitious.

On 18 December, government officials defined plans for wage growth in the coming year. In contrast to economic growth, the new 2018 wage growth target is below the presidential target set at the beginning of 2017.

The IT-sector: A haven for cryptocurrencies

On 22 December 2017, Alexander Lukashenka signed the presidential decree On the development of the digital economy, which is intended to make Belarus a regional IT leader.

President Lukashenka believes the decree will help Belarus become a centre for attracting computing talent, successful companies and international corporations working in the most advanced technological areas, such as artificial intelligence, big data, and blockchain technology.

The decree extends a special legal regime for companies based at the Belarus Hi-Tech Park (HTP) until 1 January 2049. It also expands the list of business activities to include new industries, such as neural networks, unmanned vehicles, biotechnologies, and more.

Most notably, the decree permits the HTP’s residents to conduct transactions with electronic money without limitations and companies no longer need the permission of the National Bank of Belarus to open accounts in foreign banks and other financial organizations and to perform financial operations.

Third, the decree legalises electronic money in Belarus. The HTP’s residents have a right to engage in mining and to conduct the cryptocurrency exchange.

Finally, individuals also have the right to own and to exchange cryptocurrency for foreign currency and Belarusian rubles, to carry out mining. Income from these operations frees from tax declaration of physical persons and excludes from taxation until 1 January 2023.

Almost all of the decree’s provisions will enter into force three months after its official publication. Its developers predict that by 2030 annual export revenues for Belarus’s IT sector will increase from the current $1bn to $4.7bn and the number of people employed will grow from the current 30 thousand up to 100 thousand people.

Economic development: results, prospects, and risks

On 5 December, Belarusian Prime Minister Andrei Kobyakov announced that GDP growth will reach 2 per cent for 2017 and inflation will not exceed 7 per cent. This is more ambitious than the 2017 forecast, which assumed 1.7 per cent GDP growth with an inflation rate lower than 9 per cent.

Several factors caused the current rebound of the Belarusian economy. They include improved external market conditions for trade, strengthened economic growth in Russia, and increased prices for commodities. These changes stimulated the growth of Belarusian exports and supported business activity in the country.

Furthermore, according to official forecasts from the Belarusian Council of Ministers, GDP in 2018 will rise by 3.5 per cent and goods and services exports by 5.7 per cent. The National Bank of Belarus also projects that inflation will stay at 6 per cent or below, and the money supply will not grow above 12 per cent.

However, certain experts disagree with the Council’s optimistic outlook. In particular, the World Bank forecasts GDP growth at 2.1 per cent and the IMF predicts only a 0.7 per cent growth to GDP. Common among the two organisations’ reasoning include a worsening external economic environment and the absence of structural changes within the Belarusian economy.

Indeed, it is unlikely prices of imported energy resources grow as much as in 2017. This will lead to lower benefits from commodity exports. Furthermore, the oil subsidy from Russia (a discount on purchased oil) that added substantially to GDP growth in previous years will continue to be reduced.

According to World Bank experts, in past years the Russian oil subsidy account for as much as 15 per cent of Belarusian GDP. A sharp drop in oil prices reduced the size of these benefits. In 2016, the oil subsidy accounted only for about 4.6 per cent, or approximately three times lower than in previous years.

In 2018, Belarus must repay about $3.7bn in external debts generated mostly by inefficient state-owned enterprises. Taking into account the absence of serious plans for structural reforms, these liabilities will need additional external financing and greater budget coverage.

As a result, according to the Minister of Finance Vladimir Amarin, the government plans to borrow approximately $1.2bn in 2018, increasing further the risks for financial stability and the burden on the budget.

Wages: looking forward

On 18 December, Labor and Social Protection Minister Irina Kostevich announced official predictions for wage growth in Belarus. According to Ministry estimates, average monthly wages will reach up to BYR941 in 2018 or approximately $466. Wage growth will ultimately depend on the situation of economic development in the country.

However, in April of this year, President Lukashenka said that a salary equal to BYR1000 a month remains the minimum government target. Currently, the average Belarusian earns approximately 98 per cent less than average Chinese, and more than two times less than the average Lithuanian or Pole (see the Average wages figure below).

Nevertheless, even if wages grow to predetermined levels in the coming months, true earnings will remain low. First, the threshold level of BYR1000 excludes taxes. Second, wages in the regions will be substantially minor in comparison with Minsk (the average salary in Minsk is higher by approximately 55 per cent).

Altogether, officials understand the unstable foundations of Belarus’s current macroeconomic drivers, but still, they prefer to ignore the problems of an unreformed economy and continue to dream about potential cryptocurrency benefits.

Aleh Mazol, Belarusian Economic Research and Outreach Center (BEROC)

This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)